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Framework For
Integrated
reportIng and the
Integrated report
dIscussIon paper
25 JAnuARy 2011
The Discussion Paper has been released by the Integrated Reporting Committee (IRC)
of South Africa. The IRC invites public comment on the Discussion Paper.
Please email your comments to ircomments@saica.co.za
The last day for comment is 25 April 2011.
The Discussion Paper can be downloaded from www.sustainabilitysa.org
contents
Foreword 1
1. Introduction 3
1.1. The context of an integrated report 3
1.2. What does the Discussion Paper cover? 5
1.3. Who is the Discussion Paper for? 5
1.4. Who developed the Discussion Paper? 5
1.5. Integrated reporting and the integrated report 5
1.6. The objectives of integrated reporting and the integrated report 6
1.7. What is an integrated report? 6
2. Reporting principles 8
2.1. Principles informing the report scope and boundary 8
2.2. Principles informing the selection of the report content 9
2.3. Principles informing the quality of the reported information 10
3. Suggested elements to be addressed in the integrated report 12
3.1. Report profile (What is the scope and boundary of the report?) 12
3.2. Organisational overview, business model, and governance structure
(How do we create value and make decisions?) 12
3.3. Understanding the operating context
(What are the circumstances under which we operate?) 13
3.4. Strategic objectives, competencies, KPIs and KRIs
(Where do we want to go and how do we intend to get there?) 14
3.5. Account of the organisation’s performance
(How have we fared over the reporting period?) 14
3.6. Future performance objectives (Informed by our
recent performance, what are our future objectives?) 15
3.7. Remuneration policies
(What is our approach towards remuneration?) 16
3.8. Analytical commentary
(What are the views of the leadership about the organisation?) 16
4. Assurance 17
Annex 1 – King Code of Governance Principles for South Africa 2009
and integrated reporting 18
Annex 2 – Guidance on the process for developing an integrated report 19
Annex 3 – Statement by the governing structure of an organisation
to accompany an integrated report 23
Research references 24
Acknowledgements 25
2
Foreword
The King Code of Governance Principles for South Africa 2009 (King III) states that “current incremental
changes towards sustainability are not sufficient - we need a fundamental shift in the way companies and
.
directors act and organise themselves” King III’s recommendation that organisations adopt integrated
reporting represents an important element of this ‘fundamental shift’ and a significant and timely
evolution in corporate reporting practice.
The requirement for listed companies to file financial reports emerged out of the Great Depression
in the early 1930s with the Securities Act of 1933 requiring companies to provide potential investors
with sufficient information to make an informed investment decision. Much later, in the 1990s, some
leading companies voluntarily began to publish sustainability reports reflecting a growing understanding
of sustainability challenges and stakeholder calls for more informed corporate disclosure. Now, in the
context of the global financial crisis and amidst increasing evidence that the current economic model is
socially and environmentally unsustainable and that current reporting practice is not delivering, it is time
for new and more effective forms of accountability.
The string of corporate collapses over the past decade has led many stakeholders to question the
relevance and reliability of annual financial reports as a basis for making decisions about an organisation.
Reports based largely on financial information do not provide sufficient insight to enable stakeholders to
form a comprehensive picture of the organisation’s performance and of its ability to create and sustain
value, especially in the context of growing environmental, social and economic challenges. Sustainability
reports have similarly suffered weaknesses, usually appearing disconnected from the organisation’s
financial reports, generally providing a backward-looking review of performance, and almost always
failing to make the link between sustainability issues and the organisation’s core strategy. For the most
part, these reports have failed to address the lingering distrust among civil society of the intentions and
practices of business. Stakeholders today want forward-looking information that will enable them to
more effectively assess the total economic value of an organisation.
Recognising the shortcomings of existing reporting models, and driven by an urgent need to find more
effective reporting solutions, discussions around the world have begun to focus on what has become
known as integrated reporting. Underpinning this focus is a strong appreciation that the success of
organisations is inextricably linked with three interdependent sub-systems – society, the environment,
and the global economy.
As is outlined later in this Discussion Paper, the overarching objective of integrated reporting is to
enable stakeholders to assess the ability of an organisation to create and sustain value over the short-,
medium- and long-term. The users of an organisation’s integrated report should be able to determine
from the report whether the organisation’s governing structure has sufficiently applied its collective mind
in identifying the social, environmental, economic and financial issues that impact on the organisation’s
business, and whether these issues have been appropriately incorporated into its strategy.
An integrated report is not simply an amalgamation of the financial statements and the sustainability
report. It incorporates, in clear language, material information from these and other sources to enable
stakeholders to evaluate the organisation’s performance and to make an informed assessment about
its ability to create and sustain value. An integrated report should provide stakeholders with a concise
overview of an organisation, integrating and connecting important information about strategy, risks and
opportunities and relating them to social, environmental, economic and financial issues.
By its very nature an integrated report cannot simply be a reporting by-product. It needs to flow from the
heart of the organisation and it should be the organisation’s primary report to stakeholders.
If done properly, organisations which produce an integrated report for the first time will have to take a
new look at themselves and their business models. Through the process of integrated reporting they
1
Foreword contInued
will be encouraged to explore new and potentially innovative opportunities in their products, services,
processes and markets. Integrated reporting, if effectively embraced, has the ability to improve strategic
decision-making, improve performance and enhance reputation among stakeholders.
Integrated reporting is a journey. Organisations are unlikely to achieve perfection in the first year. However,
as reporting processes for the production of the supporting information are designed and improved and as
the executive team begins to benefit from a more informed implementation of the governing structure’s
decisions, reporting will improve. Interactive communication with key stakeholders is fundamental to
the success of integrated reporting as engagement leads to knowledge of the stakeholders’ legitimate
interests and expectations.
This Discussion Paper is breaking new ground, but I have no doubt that it is the right way to go, indeed
the only way to go if we are to respond to the current challenges facing society. It is my belief that
integrated reporting represents a significant and much needed evolution of reporting practice and will
start influencing behaviour. It is my hope that it will prompt a greater understanding of the sustainability
challenges facing humankind.
Professor Mervyn E. King SC
Chairman of the Integrated Reporting Committee
January 2011
2
1. IntroductIon
The King Report on Governance for South Africa 2009 (King III) defines integrated
reporting as “a holistic and integrated representation of the company’s performance
.
in terms of both its finance and its sustainability” The overarching objective of an
integrated report is to enable stakeholders to assess the ability of an organisation
to create and sustain value over the short-, medium- and long-term. The users
of the report should be able to determine whether the organisation’s governing
structure has applied its collective mind in identifying the environmental, social,
economic and financial issues that impact on the organisation, and to assess
the extent to which these issues have been incorporated into the organisation’s
strategy. An integrated report is the organisation’s primary report. This Discussion
Paper provides guidance on the principles to be applied in preparing an integrated
report and identifies some suggested elements to be included in an integrated
report, understanding that the process is evolving and that organisations will
improve their reports year by year.
1.1. the context of an integrated report
Recent societal trends and events – such as the global financial crisis, the persistence of socio-economic
inequality, the growing evidence of resource constraints and climate change – suggest that organisations
and communities will be faced with increasing turbulence and uncertainty. This uncertainty, coupled with
the changing expectations regarding the roles and responsibilities of public and private organisations,
highlights the need for organisations to clearly communicate how these trends impact on their activities.
It is becoming increasingly apparent that the success or failure of organisations is dependent on their
ability to create and sustain value without depleting the capital assets – financial, human, manufactured,
social or natural – on which that value depends. There is similarly a growing recognition that a change
is needed in the way organisations report to their stakeholders. The current reports on annual financial
performance, sustainability and governance disclosure often fail to make the connection between the
organisation’s strategy, its financial performance and its performance on environmental, social and
governance issues. Much of what is currently reported tends to be backward-looking and fails to provide
stakeholders with sufficient information to make a meaningful assessment regarding the organisation’s
ability to create and sustain value over the short-, medium- and long-term.
Decision-making within organisations and by investors is often heavily reliant on financial information, yet
this information, important as it is, may not provide a complete picture of the organisation’s true situation.
Further, the measurement of performance and reward structures such as management bonuses are often
short-term focused which has exacerbated the leaning to short-term performance and strategies at the
expense of a longer-term view.
In the context of these issues, there is a growing move towards integrated reports both nationally and
internationally:
I
• n South Africa, King III calls for organisations to prepare an integrated report, recognising that the
impact of the organisation on the environment and society, and related reputational issues, are
material issues that can affect the very existence of the organisation. Following the incorporation of
King III into the Johannesburg Stock Exchange (JSE) Listings Requirements, listed companies are
required to issue an integrated report for financial years starting on or after 1 March 2010, or to explain
why they are not doing so. Various other initiatives in the country are adding to the call for integrated
reports1.
1. The draft Code for Responsible Investing by Institutional Investors in South Africa (CRISA) states that institutional investors
should incorporate environmental, social and governance considerations into their investment analysis and activities, and this
includes an assessment of a company’s integrated report.
3
1. IntroductIon contInued
I
• nternationally, the International Integrated Reporting Committee (IIRC) – which includes in its
membership the International Accounting Standards Board (IASB), the International Federation
of Accountants (IFAC), the Financial Accounting Standards Board (FASB), the Global Reporting
Initiative (GRI), The Prince’s Accounting for Sustainability Project, and the World Business Council for
Sustainable Development (WBCSD) – is currently developing guidance on an international framework
for an integrated report. More broadly, there is evidence of growing pressure for organisations to
report on their sustainability performance, including through an integrated report2.
An organisation’s ability to create and sustain value is determined inter alia by how it is led and its
governance. Transparency, accountability and ethical leadership are the pillars of good governance. An
effective reporting framework can allow leaders to reflect on the social, environmental, economic and
financial impacts of the organisation they lead, and demonstrate, through integrated reporting, integrity,
transparency and accountability in their activities.
Box 1: the benefits to an organisation of an integrated report
T
• he process of producing an integrated report is an excellent means for the leadership of
the organisation to gain an in-depth understanding of the organisation’s strategy and how it
affects and is affected by environmental, social, financial and economic issues. The process
also helps to improve the internal awareness of these issues and the impact they have on the
organisation.
T
• he leadership can demonstrate to a wide range of stakeholders that it fully understands the
business and the challenges facing the business, and that it is being effective in steering the
organisation towards a long-term sustainable future.
T
• he report provides a holistic view of the organisation and is useful to any stakeholder who has
a longer term interest in the organisation enabling them to make an informed assessment of
its ability to create and sustain value.
T
• he increased transparency of the report, which contains both the positive and negative issues
and challenges, can result in greater trust and confidence in the organisation and an enhanced
reputation among stakeholders.
R
• isk management can be enhanced because organisations will consider risks from an
integrated perspective.
T
• he leadership’s ability to demonstrate its effectiveness, coupled with the increase in
transparency, could result in a lower cost of capital to the organisation.
A
• s organisations look for the efficiencies required to address the challenges of resource
constraints, they frequently realise cost savings in their business processes and discover ways
to improve their products and services.
T
• his process of integration encourages the development of a culture of innovation in the
organisation.
O
• rganisations that understand and address their external challenges are likely to be more
competitive in the market place, and enjoy enhanced brand value and improved customer
support.
O
• rganisations that better understand their external environment are in a better position to
exploit new business opportunities.
2. The Danish Financial Statements Act requires large companies to account for their social responsibility, and the Danish
government recommends that businesses adopt the UN Principles for Responsible Investment and the UN Global Compact.
The UK Companies Act brought in several important regulations that require directors to consider the impacts of the company’s
operations on the community and the environment. Many other jurisdictions have issued guidance for companies and State
departments to provide sustainability performance information and to consider environmental and social impacts in decision-
making. The IASB has issued an IFRS Practice Statement on Management Commentary.
4
R
• esearch shows that employees prefer working for organisations with high integrity and of
good reputation. These organisations, in turn, experience lower employment costs and better
employee loyalty.
T
• he report can provide a platform for strategic communication with stakeholders.
1.2. what does the discussion paper cover?
The Discussion Paper outlines a principles-based approach to integrated reporting and the integrated
report. It further seeks to offer practical direction on the integrated report. The Discussion Paper covers
the objectives and principles and identifies the suggested elements to be included in the integrated
report with the aim of meeting these objectives and principles. The Discussion Paper is not intended to
be a checklist or prescriptive.
The Discussion Paper does not deal with the underlying financial and sustainability reporting standards
and frameworks. Companies are obliged to use accepted accounting standards, such as the International
Financial Reporting Standards (IFRS). There is a growing expectation on organisations to make use of
the various sustainability reporting and performance frameworks available, including for example the
Sustainability Reporting Guidelines of the GRI, the principles of the UN Global Compact, the guidance
provided in ISO 26000, and the JSE Socially Responsible Investment Index criteria. The organisation
should discern which elements of the reporting standards and frameworks will contribute to a meaningful
integrated report and which represent further detail that is useful to report separately. For the purpose
of the integrated report, the organisation should avoid a box-checking exercise against the frameworks.
It should be noted that it is unlikely that all of the governance disclosure required in terms of King III will
be included in the organisation’s integrated report. Separate disclosure of the detailed information may
be required.
1.3. who is the discussion paper for?
The guidance may be used by any organisation.
The Discussion Paper is intended both for the leadership of the organisation (to assist them in exercising
their judgment on the organisation’s reporting activities and in deciding what should be included in the
integrated report), as well as for those tasked with preparing the integrated report.
In applying the guidance the organisation may adopt a multi-disciplinary approach drawing on input from
different functional units with the ultimate responsibility resting with the organisation’s governing structure.
1.4. who developed the discussion paper?
It is a requirement that companies listed on the JSE produce an integrated report. In May 2010, the
Integrated Reporting Committee (IRC) was formed by the Association for Savings & Investment South
Africa (ASISA), Business Unity South Africa (BUSA), the Institute of Directors in Southern Africa (IoDSA),
the JSE Ltd, and The South African Institute of Chartered Accountants (SAICA). In September 2010, the
Banking Association South Africa (BASA) and the Chartered Secretaries Southern Africa (CSSA) joined the
IRC. The IRC is chaired by Professor Mervyn King, the chairman of the King Committee.
The IRC commissioned a working group comprising financial and sustainability practitioners to develop
guidelines on good practice in integrated reporting (see Acknowledgements).
The IRC shares information with the international body, the IIRC. The IRC’s aim is to ensure that local
guidance is in line with international guidance issued by the IIRC.
1.5. Integrated reporting and the integrated report
It is important to appreciate the distinction between the process of integrated reporting and the product
of the integrated report, which is only one part of the broader suite of the organisation’s communication
activities with its stakeholders.
An organisation’s business operations affect many different stakeholders, directly or indirectly.
Stakeholders can be defined as entities or individuals that can reasonably be expected to be significantly
affected by the organisation’s activities, products and services, and whose actions can reasonably be
expected to affect the organisation’s ability to successfully implement its strategy.
5
1. IntroductIon contInued
Organisations should have interactive communication processes in place so that the legitimate interests
and expectations of their key stakeholders can be considered and addressed. The acquired information
from this engagement process enables the executive team to implement, and the governing structure to
monitor, the organisation’s long-term strategy on a more informed basis.
The integrated report is only one part of the organisation’s broader and ongoing communication with
stakeholders and should provide an integrated view of the organisation’s strategy and total performance.
While the integrated report should be kept as concise as possible its length will depend on the volume of
material information to be conveyed and the complexity of the organisation and its industry.
The integrated report is the organisation’s primary report. It could, however, be linked to more detailed
reports and information, such as the annual financial statements, sustainability report, governance
disclosure etc. The detailed reports may be necessary in order to provide detailed information for specific
user groups to facilitate deeper analysis of the organisation and comparability between peers, and to
comply with statutory requirements. The reports should be made easily accessible to users, for example
through the organisation’s website.
An integrated report is not simply an extract from the traditional annual report or a combination of the
annual financial statements and the sustainability report. Such an approach would run the risk of simply
providing data that does not empower stakeholders to gain a complete and informed understanding of
the long-term viability of an organisation and its ability to create and sustain value.
1.6. the objectives of integrated reporting and the integrated report
The overarching objective of integrated reporting in general, and the integrated report in particular, is to
report to stakeholders on the strategy, performance and activities of the organisation in a manner that
enables stakeholders to assess the ability of the organisation to create and sustain value over the short-,
medium- and long-term. Further, it is to foster appreciation, both within the organisation and among its
stakeholders, of the extent to which the organisation’s ability to create and sustain value is based on
financial, social, economic and environmental systems and by the quality of its relationships with its
stakeholders.
Within this context, the integrated report should:
R
• eflect the extent to which:
– the organisation’s governing structure has applied its collective mind in identifying and addressing
the social, environmental, financial and economic issues that impact the organisation;
– these issues have been integrated into the organisation’s strategy;
– a systematic process exists to take into account material financial, social, economic, environmental
and governance issues in the organisation’s strategic decision-making, in determining its key
performance and risk indicators (KPIs and KRIs3), and in reviewing and reporting on its performance;
and
– performance metrics adopt a more forward-looking and holistic perspective without an undue
emphasis on short-term financial performance.
R
• espond to the information needs of stakeholders by providing sufficient material information about
the organisation’s performance.
P
• rovide high-level information about the existing resources of the organisation, any claims against it,
and how efficiently and effectively the organisation’s executive team and governing structure have
discharged their responsibilities to use the organisation’s resources responsibly.
1.7. what is an integrated report?
An integrated report tells the overall story of the organisation. It is a report to stakeholders on the strategy,
performance and activities of the organisation in a manner that allows stakeholders to assess the ability
of the organisation to create and sustain value over the short-, medium- and long-term. An effective
3. Key risk indicators are defined in King III as the indicators by which key risks (those which the company perceives to be its most
significant risks) can be easily identified.
6
integrated report reflects an appreciation that the organisation’s ability to create and sustain value is
based on financial, social, economic and environmental systems and by the quality of its relationships
with its stakeholders.
The integrated report should be written in clear and understandable language in order for it to be a useful
resource for stakeholders.
To achieve the stated objectives of integrated reporting and the integrated report the Discussion Paper
identifies suggested elements to be included in the integrated report (Section 3):
• A
description of the scope and boundary of the integrated report. Section 3.1.
• A
concise overview of the organisation and its activities, a statement of its Section 3.2.
business model describing the manner in which it currently creates value, and an
overview of its governance structure.
A
• description of the risks and opportunities that are material to the organisation’s Section 3.3.
current and anticipated activities. These risks and opportunities are identified based
on a review of financial, social, environmental, economic and governance issues
and trends, an assessment of the organisation’s material impacts on financial,
social, economic and environmental systems, and a review of its relationships
with key stakeholders.
A
• description of the organisation’s strategic objectives demonstrating how these Section 3.4.
have been informed by the risks and opportunities, including sustainability issues.
The report should give an indication of the organisational competencies required
to realise the strategic objectives, and a succinct list of the KPIs and KRIs that will
track performance against the strategic objectives and competency requirements.
This should cover the short-, medium- and long-term periods.
A
• n account of the organisation’s performance in terms of its strategic objectives, Section 3.5.
its material social, environmental, economic and financial impacts, its KPIs and
KRIs.
A
• statement of the organisation’s anticipated activities and future performance Section 3.6.
objectives, informed by its assessment of recent performance and understanding
of societal trends and stakeholder expectations.
A
• n overview of how the organisation remunerates employees and senior Section 3.7.
executives, including factors that could influence future remuneration.
A
• brief analytical commentary that reflects the understanding of the organisation’s Section 3.8.
governing structure and executive team regarding the nature of the organisation’s
current and anticipated performance in the context of the organisation’s strategic
objectives. The organisation should report how it can improve its positive material
impacts and how it can eradicate or ameliorate its negative material impacts.
7
2. reportIng prIncIples
This section outlines the reporting principles that should be considered when exercising the judgment
required in preparing an integrated report. The reporting principles describe the outcomes a report
should achieve and are intended to guide decisions relating to the report boundary, the information to
be reported on, and the manner in which the information is presented. In considering these aspects, the
organisation’s strategy and risks should be taken into account, as well as the legitimate interests and
expectations of stakeholders. Judgment is required when determining the extent of the detail disclosed
about the organisation’s strategy. It is not intended that the organisation should disclose competitive
information. The organisation, however, should not fail to provide relevant information that would not
compromise it.
Global companies face particular challenges in determining the information to be reported. The OECD
Guidelines for Multinational Enterprises4 could be useful in helping organisations make these decisions.
The reporting principles are intended to assist the organisation to prioritise the various issues to be
addressed in the report.
Information included in the integrated report may be supported by information provided in other more
detailed reports, such as the annual financial statements and sustainability report. While the principles
applied in compiling the detailed reports will equally apply to the underlying information, they would not
necessarily apply to the same degree in the integrated report.
There are three categories of reporting principles:
P
• rinciples informing the report scope and boundary
P
• rinciples informing the selection of the report content
P
• rinciples informing the quality of the reported information
2.1. principles informing the report scope and boundary
The organisation needs to define the scope and boundary of the integrated report.
Full disclosure on scope and boundary setting
In identifying the entities represented in the report and describing the reporting approach for each
entity the organisation should consider the nature of its influence and/or control over the entity, as well
as the extent to which the entity can impact on the organisation’s ability to create and sustain value.
When explaining the process used for identifying the entities and defining the reporting approach, the
organisation should consider the principles provided in IFRS, as well as those contained, for example, in
the Sustainability Reporting Guidelines of the GRI and other relevant initiatives.
Where the boundary of the integrated report differs from that of other more detailed reports, such as
the annual financial statements, this fact should be disclosed stating the discrepancy. For example, in
the case of a joint venture (JV) only a portion of the financial performance might be included in the
consolidated financial information, whereas the full extent of its carbon emissions would typically be
included if the reporting organisation has operational control over the JV5.
The integrated report deals with performance during the reporting period. Where there are significant
events that occur after the end of the reporting period, but before the integrated report is finalised, the
report should include a description of the event and where possible an explanation of the likely impact.
Defining scope and boundary can involve determining:
T
• he entities to be represented in the report (e.g. subsidiaries, JVs, franchisees).
4. http://www.oecd.org/department/0,3355,en_2649_34889_1_1_1_1_1,00.html
5. For example, if greenhouse gas emissions are a material issue for the organisation it may consider the guidance on boundary
setting provided in the WBCSD’s Greenhouse Gas Protocol.
8
T
• he nature of the information to be provided for each entity (e.g. full or pro rata performance data,
disclosure on the management approach applied to that entity, or general narrative reporting on the
relevant risks and opportunities associated with that entity)6.
2.2. principles informing the selection of the report content
To ensure the integrated report presents a balanced and reasonable picture of the organisation and its
activities careful determination is required about the information to be included in the report. Determining
the report content necessitates a high degree of judgment, care and skill.
To be useful, information needs to be both relevant and faithfully represented. In preparing an integrated
report consideration should be given to the factors that may influence the assessment or decision-making
of stakeholders and the organisation. Items that are not material to making such a decision should not be
included in the integrated report.
This section explains the principles of relevance and faithful representation and outlines how they can be
applied in exercising the judgment required when preparing an integrated report, particularly in relation
to considering materiality.
Relevance and Materiality
Relevance has to do with providing information that assists stakeholders to evaluate the organisation’s
performance and to make assessments about the ability of the organisation to create and sustain value
over the short-, medium- and long-term. It also applies to the impacts, both positive and negative, that the
organisation has on social, environmental, financial and economic systems. Information that is capable
of making a difference in the assessments and decisions of stakeholders is relevant even if some users
choose not to take advantage of it or are already aware of it from other sources.
Materiality
An item is material if it is of such importance and has an impact that could substantively influence the
assessments and decisions of the organisation or its stakeholders. Materiality is a measure or threshold
against which information can be evaluated. The nature of an integrated report is that of a strategic
overview, accordingly, the more detailed reports will follow other materiality levels.
F
• or financial information, materiality is used in the sense of the magnitude of an omission or
misstatement of accounting data that misleads users and is usually measured in monetary terms.
Materiality is judged both by relative amount and by the nature of the item.
I
• n the context of sustainability, materiality is a more difficult measure to define and a great deal of
judgment is required. An organisation is faced with a wide range of sustainability issues on which it
could report and thus it is important for the organisation’s leadership to apply its mind to what needs
to be reported. Relevant issues are those that may reasonably be considered important for reflecting
the organisation’s financial, environmental, economic and social impacts, or influencing the decisions
of stakeholders.
Materiality needs to be considered at three levels:
A
• re all the ‘right things’ being reported?
A
• re these ‘right things’ being reported accurately? What level of error or omission in the data would
influence the assessments and decisions of stakeholders and the organisation? In this instance, the
level of materiality is different across issues and even within a particular issue it may be different
across sectors.
I
• s the organisation being responsive to the legitimate interests and expectations of its key stakeholders
(sometimes referred to as stakeholder inclusiveness)? The organisation needs to explain in the report
how the key stakeholders’ legitimate interests and expectations are being addressed.
6. The GRI’s Boundary Protocol may be useful in determining reporting boundary. http://www.globalreporting.org/NR/rdonlyres/
CE510A00-5F3D-41EA-BE3F-BD89C8425EFF/0/BoundaryProtocol.pdf
9
2. reportIng prIncIples contInued
Faithful Representation
To be useful, the information in an integrated report needs to be relevant and should faithfully represent
the situation and circumstances. The goal of faithful representation is to ensure that the information
presented is complete, neutral and free from error.
Where an issue is relevant but cannot be fully faithfully represented, for instance there is significant
uncertainty, inclusion of a description of the issue is appropriate (e.g. a manufacturing organisation
suffers a spill of toxic material into a river but the full financial cost is unknown).
Complete
Complete means that all material information that could affect the assessment or decisions of
stakeholders is included in the report. This applies to both positive and negative items. Issues and results
should not be combined or offset to present a more favourable situation than actually exists. In addition,
the organisation should consider issues throughout its sphere of influence.
Neutral
Neutral information has no bias in the selection or in the presentation of information. The overall
presentation of the report’s content should provide an unbiased picture of the organisation’s performance.
The report should avoid selections, omissions or presentation formats that are reasonably likely to unduly
or inappropriately influence a decision or judgment by the user. The report should include both favourable
and unfavourable results, as well as issues that can influence the decisions of stakeholders, in proportion
to their materiality.
Free from error
Free from error implies there are no errors or omissions in the description of the information, and that the
process used to produce the reported information has been selected and applied without error. This does
not imply that the information will be perfectly accurate in all respects. It does imply that where amounts
are estimates, this is clearly communicated, the nature and limitations of the estimating process are
explained, and no errors have been made in selecting and applying an appropriate process for developing
the estimate. The level of comfort can be enhanced through independent assurance.
2.3. principles informing the quality of the reported information
Having decided on the information to include in the integrated report, using the principles outlined
above, every effort should be made to ensure the information is presented as effectively as possible. The
information presented should meet appropriate quality criteria. The principles set out below guide choices
on ensuring the quality of the reported information, including its proper presentation. Decisions related to
the process of preparing information for the report should be consistent with these principles.
Comparability and consistency
I
• nformation is more useful if it can be compared with similar information from other organisations
and with similar information for the same organisation for a different time period. Where reporting
policies have been changed, the organisation should explain the reasons for the change and describe
the impact.
C
• omparability is necessary for evaluating performance. Information should be presented in a manner
that allows users of the report to compare the information reported on financial, social, economic and
environmental performance against the organisation’s past performance and its strategic objectives
and targets.
W
• here possible an organisation should include industry or other organisations’ targets in order for a
user to benchmark the organisation’s actual performance within the correct context.
10
Verifiability
U
• sers will have more confidence in information that is verifiable. Verifiability means that different
knowledgeable and independent observers could reach consensus, although not necessarily complete
agreement, that a particular depiction is a faithful representation. Quantified information need not be
a single-point estimate to be verifiable; a range of possible amounts and the related probabilities can
also be verified.
I
• t is not possible to verify all explanations and forward-looking information. To help users decide
whether or not they want to use that information, disclosure of the underlying assumptions, the
methods of compiling the information and any other relevant information should be included in the
report. Misrepresented information, overly optimistic or overly conservative statements can be
misleading and affect the assessments and decisions of stakeholders and may affect the reputation
of the organisation.
Timeliness
T
• imeliness means having information available to stakeholders in time to be capable of influencing
their assessments and decisions. Generally, the older the information, the less useful it is. Certain
historical data, however, can be useful to identify and assess trends.
R
• eporting should occur on a regular schedule and information should be available in time for stakeholders
to make informed decisions. Relevance is often dictated by the timing of the communication. For
example, if an organisation discovers a material issue that would affect stakeholders’ assessments,
that information should not be held back until the integrated report is released since it may be received
too late to be relevant.
Understandability or clarity
O
• rganisations should strive to present information in a way that is understandable, accessible and
usable by the organisation’s key stakeholders. The implications of certain data may need to be
explicitly stated. Organisations should avoid the use of jargon, and where the use of technical terms
is unavoidable a glossary of terms would be helpful to users of the report.
11
3. suggested elements to Be addressed
In the Integrated report
The elements listed below are those that are seen as being appropriate to consider for inclusion in the
integrated report if the report is to meet the stated objectives of integrated reporting and the integrated
report. The suggested elements are neither prescriptive nor intended to limit what is included in the
report. Judgment should be exercised in determining which elements the organisation should report on,
as well as the structure of the report. The following is provided for broad guidance purposes only.
3.1. report profile
(What is the scope and boundary of the report?)
The report should include a brief description of the scope and boundary of the integrated report.
The organisation’s governing structure should, in terms of King III, acknowledge its responsibility for
ensuring the integrity of the report in a statement accompanying the report (refer to the example in
Annex 3).
Some examples of what could be considered for inclusion in the report are:
• The reporting cycle (e.g. annual) and the period covered by the report.
T
• he reporting boundary, noting the geographic scope, the entities represented in the report (e.g.
subsidiaries, JVs, franchisees), and the nature of the information provided for each entity (e.g.
operational performance, management performance or general narrative description).
T
• he process used for identifying the reporting boundary.
T
• he reporting principles that have been applied (e.g. the principles outlined in Section 2, the principles
relating to financial statements in terms of IFRS, the sustainability elements in terms of the GRI, and
those provided in King III).
T
• he policy and practice relating to seeking assurance on the report, the nature and scope of assurance
provided for this particular report, any qualifications arising from the assurance, and the nature of the
relationship between the organisation and the assurance providers.
S
• ignificant restatements from prior reporting periods.
R
• eference to major supporting documentation that may be separately available (e.g. the annual
financial statements, sustainability report, and other communications with stakeholders).
3.2. organisational overview, business model, and governance structure
(How do we create value and make decisions?)
The report should include an overview of the organisation, the manner in which it currently creates
value, and a description of its governance structure. The level of detail provided should be sufficient
for stakeholders to make an informed assessment on the organisation’s ability to create and sustain
value over the short-, medium- and long-term, and on how efficiently and effectively the organisation’s
executive team and governing structure have discharged their responsibilities to use the organisation’s
resources responsibly.
Some examples of what could be considered for inclusion in the report are:
A
• brief organisational overview noting:
- The organisation’s name, size and the location of its operations and activities.
- The principal activities of the organisation, including its products and services.
- The organisational structure, including the principal divisions, subsidiaries, associates and JVs.
A
• concise statement of the business model describing the manner in which the organisation currently
creates value.
H
• igh-level information about the existing resources of the organisation and any claims against it.
12
A
• brief description of the material aspects of the governance structure, which may include the
following:
- A diagram of the governance structure, noting the committees and authority levels.
- An outline of general governance aspects, including the key policies, ethical approaches, and
commitments approved by the organisation’s governing structure, as well as the ancillary processes
for determining key strategic and tactical approaches.
3.3. understanding the operating context
(What are the circumstances under which we operate?)
The report should provide information to allow stakeholders to assess the extent to which the organisation’s
ability to create and sustain value (in the short-, medium- and long-term) is based on financial, social,
environmental and economic systems and its relationships with key stakeholders.
Some examples of what could be considered for inclusion in the report are:
Identifying material issues, impacts and relationships
A
• brief description of the financial, social, environmental, economic and governance issues and trends
that are relevant to the organisation’s current and anticipated activities. In identifying these, the
organisation should consider and identify issues and trends that are relevant to its sector, its products
and services, the markets and regions where it operates, as well as the issues and trends that may be
specific to the organisation itself. In doing this, the organisation could consider:
- Global issues and trends (e.g. exchange rate fluctuations, commodity prices, climate change and
demographic developments), as well as local issues and trends (e.g. broad-based black economic
empowerment, HIV/Aids and socio-economic inequality).
- Issues and trends that have an immediate bearing on the organisation, as well as those that have an
anticipated future impact.
A
• concise statement of the significant impacts – both positive and negative – of the organisation’s
decisions and activities on financial, social, environmental and economic systems, identifying those
that have material implications for its ability to create and sustain value, and where the organisation
has the potential to optimise or lessen these impacts.
- Direct impacts could include the direct economic value generated and distributed, the significant use
of (or impact on) natural resources, and the material contribution to societal challenges such as skills
development and broad-based black economic empowerment.
- Indirect impacts could include the influence on the performance and material impacts of other
organisations and individuals within the value chain, and the indirect contribution to employment
generation and wealth distribution.
T
• he organisation should consider the quality of its relationships with stakeholders and the potential to
impact on the organisation’s ability to create and sustain value. The report should briefly:
- Identify the key stakeholder groups and describe how the organisation’s relationship with each group
may impact on its ability to create and sustain value.
- Describe the organisation’s current and anticipated approach to developing and maintaining an
effective relationship with each stakeholder group. This may include a report by the organisation’s
corporate stakeholder relationship officer or similar role tasked with managing the interactive
communication with stakeholders.
A
• description of the process that has been followed to identify the issues, impacts and relationships
and to determine those that are material to the organisation and its ability to create and sustain value.
To avoid concerns about being selective in identifying material issues, the organisation should explain
why any issues that are often considered relevant to its sector or location have not been identified
as material. A more detailed explanation of the process for determining materiality may be made
available separately. The process of identification might include a review and response to each of the
criteria included within the Sustainability Reporting Guidelines of the GRI and other guidelines.
13
3. suggested elements to Be addressed In the Integrated
report contInued
Identifying risks and opportunities
A
• concise statement of the principal risks and opportunities having a bearing on the organisation’s
current and anticipated activities based on its material issues, impacts and relationships. A table could
be included listing the risks and opportunities with a summary of the organisation’s response to each
and perhaps a cross-reference to a more detailed response elsewhere in the report or in other reports.
W
• here there is any doubt that the organisation, or a major component of the organisation, may be a
going concern, the reasons for that concern and the factors that may influence the outcome should
be communicated.
3.4. strategic objectives, competencies, kpIs and krIs
(Where do we want to go and how do we intend to get there?)
Informed by the analysis outlined above, the organisation should provide a statement of its strategic
objectives and targets, an indication of the organisational competencies required to realise these
objectives, and a succinct list of KPIs and KRIs that will track performance against the strategic objectives
and competency requirements. This should cover the short-, medium- and long-term periods.
Some examples of what could be considered for inclusion in the report are:
A
• concise statement of the strategic objectives that have been made with the aim of creating and
sustaining value over the short-, medium- and long-term. The statement should clearly demonstrate
how these strategic objectives are informed by the organisation’s business model, its material
issues, impacts and relationships, and its identified risks and opportunities. While the focus should
be on identifying the strategic objectives for the organisation as a whole, in some instances it will be
appropriate to describe the broad strategic objectives at the level of significant business units.
A
• n indication of the organisational competencies (internal systems, personnel and culture) required
to realise its strategic objectives in the context of the material issues, impacts and relationships. This
may include the systems, personnel and culture relating to compliance management, trends analysis,
data management, stakeholder relationships, risk management and innovation.
A
• list of priority KPIs and KRIs with a brief description of each outlining how they have been determined,
including any frameworks used.
3.5. account of the organisation’s performance
(How have we fared over the reporting period?)
An important part of the integrated report is an account of the organisation’s performance. This includes
current financial performance and other appropriate measures of performance. This should include a brief
description of the organisation’s activities taken in respect of its strategic objectives and targets, as well
as a concise review of the outcome of these activities. While the performance review should be primarily
at a group level, depending on the nature of the organisation it might also entail a high-level review of
performance for each of the significant business units. The performance review should be integrated in a
holistic manner throughout the report.
Some examples of what could be considered for inclusion in the report are:
A
• concise account of the activities undertaken during the reporting period to address the strategic
objectives and material impacts, and to ensure the organisation has the required organisational
competencies to deliver on its strategic commitments.
A
• concise description of the outcome (noting both successes and failures) of its activities in terms
of its strategic objectives and targets, material impacts, KPIs and KRIs. Sufficient information should
be provided to enable an assessment of performance trends and key patterns in terms of the
organisation’s strategic commitment areas and material impacts. This review of performance should
be consistent with the principles outlined in Section 2. Brief commentary should be provided on the
nature of the information collection and data management process.
14
Box 2 – Including summary financial information in the integrated report
For listed companies the integrated report may, depending on the volume of material information
and the complexity of the organisation, be separate from the more detailed annual financial
statements. The integrated report, however, should be able to stand alone and thus should
provide sufficient financial information to enable an informed opinion to be made. It is suggested
that the following financial information should be included in the integrated report:
A
• bridged financial statements (e.g. statement of financial position, statement of comprehensive
income, statement of changes in equity, and statement of cash flow).
E
• xplanation of factors influencing change in profits (e.g. changes in volume of inputs or outputs,
selling price, input costs, exchange rates, acquisitions or disposals of business or discontinued
operations).
I
• dentification of unusual/non-operating items included in the results – a reconciliation to
headline earnings/core earnings or whatever measure management believes is the most
meaningful measure of financial performance.
S
• egmented information where relevant.
F
• inancial investment in future capacity (e.g. capital expenditure, research and development
expenditure, acquisition of business).
F
• actors that may influence future cash flows, such as capital commitments and contingencies.
F
• inancial value added by the business and how it was applied (e.g. employee benefits, taxes
paid, providers of capital and reinvested).
E
• conomic value (as opposed to financial issues) should be specifically addressed – i.e. value
added to the community, sharing of wealth, distribution of wealth etc.
The financial information used in the integrated report should be derived from and be in alignment
with the information contained in the audited annual financial statements. Organisations should
not change accounting policies for presentation of information in the integrated report. For listed
companies this would imply that the recognition and measurement principles, as well as the
presentation principles of IFRS will be applied. The integrated report will probably not include all
of the detailed disclosures required by IFRS.
3.6. Future performance objectives
(Informed by our recent performance, what are our future objectives?)
In addition to reporting on the performance during the reporting period, the integrated report should
include a forward-looking statement of the organisation’s anticipated activities and performance
objectives, informed by its assessment of recent performance and understanding of societal trends and
stakeholder expectations.
T
• he report should include a clear statement of intent regarding future performance, ideally including
specific performance targets. The statement of intent and any accompanying targets should be
aligned with the organisation’s assessment of the changing societal context, be consistent with its
strategy and KPIs and KRIs, and be responsive to the expectations of key stakeholders.
T
• he report should include a forward-looking reflection on the internal systems, personnel and culture
that the organisation has identified as being required to address its identified risks and opportunities
and to ensure delivery on its strategy. It should outline the anticipated activities being considered to
develop the required systems, personnel and culture.
15
3. suggested elements to Be addressed In the Integrated
report contInued
3.7. remuneration policies
(What is our approach towards remuneration?)
An integrated report should provide high-level information on how employees in general and senior
executives in particular are remunerated. Disclosure should include how they have been remunerated
in the current period, as well as factors that will influence future remuneration. The application of King III
and compliance with other regulatory requirements, such as IFRS and the JSE Listings Requirements,
will require disclosure of more detailed information.
The disclosure in respect of current remuneration should indicate the extent to which the remuneration
is fixed and variable and the factors that influence the variable element. As this is likely to differ for
different levels of employees, judgment should be exercised to determine how employees should be
grouped when providing this disclosure. Separate disclosure should be given for senior executives, for
example the executive directors of a company. Disclosure should be provided of the major components
of employment costs, for instance salaries and wages, housing benefits, post-employment benefits, etc.
Consideration should also be given to disclosing comparatives for the total cost to the organisation per
employee at the different levels.
Judgment should be exercised in determining the extent of the disclosure in respect of employees. In
some cases, disclosure of wage agreements may be appropriate. Disclosure of material share-based
payment awards would be appropriate if significant in relation to either current or future remuneration.
As senior executives are instrumental in determining the strategy of the organisation, it is important to
understand how that strategy could influence their future remuneration. KPIs that could influence senior
executive remuneration should be identified and the extent to which that could influence remuneration
disclosed.
3.8. analytical commentary
(What are the views of the leadership about the organisation?)
The report should include a brief analytical commentary that reflects the understanding of the members
of the organisation’s governing structure and executive team regarding the nature of the organisation’s
current and anticipated performance in the context of the organisation’s strategic objectives. The
organisation should report how it can improve its positive material impacts and how it can eradicate or
ameliorate its negative material impacts.
Consideration should be given to both the nature of the organisation as well as the reporting principles
of Section 2 in deciding the issues to be addressed and the information to be presented. Inclusion of
appropriate ratios of financial, economic, environmental, social and governance information, as well as
summarised historic information is likely to be appropriate.
16
4. assurance
Independent assurance lends credibility to the organisation’s activities and reporting with regard to the
accuracy, completeness and reliability of disclosure in the integrated report, whether it relates to financial,
social, environmental, economic, or governance information.
Assurance processes over financial information are well established and the requirements for assurance
over a company’s financial reporting have not changed.
King III recommends that the organisation’s board should ensure the integrity of the integrated report and
allows the board to delegate to the audit committee the evaluation of sustainability disclosure. The audit
committee should review the sustainability issues in the integrated report to ensure they are reliable and
that there is no conflict with the financial information.
King III recommends that the audit committee should engage the external auditors to provide assurance
on summarised financial information, and it also recommends that the sustainability reporting and
disclosure should be independently assured.
When determining the integrated reporting assurance strategy, a combined assurance model should be
followed taking into account assurance provided by management, internal audit, external audit, and any
other external assurance provider, such as ISO certification and BEE verification.
Developing the ideal integrated report will be a journey for many organisations and so too will the extent
and level of assurance. With time all material environmental, social, financial, economic, and governance
issues could be covered with reasonable assurance.
Where integrated reports present summary information derived from the more detailed annual financial
statements and sustainability report already audited or assured, auditors would report on such aspects
in accordance with International Standards on Auditing (ISAs) and the underlying detailed reports should
be accessible to users.
ISAs are the professional standards used to audit financial information. King III refers to the International
Standard on Assurance Engagements 3000: Assurance Engagements other than Audits or Reviews of
Historical Financial Information and AccountAbility’s AA1000 Assurance Standard (AA1000AS) for the
assurance of sustainability information.
Organisations should engage at an early stage with their auditors and other external and internal
assurance providers to determine the aspects of the integrated report that are to be subject to audit
or assurance, and the applicable financial reporting and sustainability or quality frameworks to be
applied to the information reported. Assurance cannot generally be expressed on prospective and future
information; however, organisations can obtain assurance on the processes and assumptions leading to
forward-looking statements.
17
annex 1 – kIng code oF governance prIncIples
For south aFrIca 2009 and Integrated reportIng
In the introduction to the King Code of Governance Principles for South Africa 2009 (King III) the chairman
of the King Committee, Professor Mervyn King, writes:
“All entities should apply the principles in the Code and consider the best practice
recommendations in the Report. All entities should by way of explanation make a positive
statement about how the principles have been applied or have not been applied. This level of
disclosure will allow stakeholders to comment on and challenge the board on the quality of its
governance. The manner of application will differ for each entity and it is likely to change as the
aspirational nature of the Code should drive entities to continually improve governance practices.
It is important to understand that the ‘apply or explain’ approach requires more consideration
– application of the mind – and explanation of what has actually been done to implement the
principles and best practice recommendations of governance. 7 ”
King III recommends that entities should adopt integrated reporting to enable stakeholders to make a
more informed assessment of the economic value of a company. The term ‘integrated report’ is used
throughout the Code and is explained in chapter 9:
“The integrated report should … have sufficient information to record how the company has both
positively and negatively impacted on the economic life of the community in which it operated
during the year under review, often categorised as environmental, social and governance issues
(ESG). Further, it should report how the board believes that in the coming year it can improve
”
the positive aspects and eradicate or ameliorate the negative aspects. 8
The Discussion Paper does not repeat all of the suggested disclosures contained in King III, rather it sets
out a framework within which such disclosures can be reported using the principles of ‘apply or explain‘
and ‘substance over form’. The Discussion Paper should be read in conjunction with King III.
In general, the organisation’s governing structure should use integrated reporting to demonstrate how
it is:
• Fulfilling its governance duties and responsibilities.
• Providing ethical leadership.
E
• nsuring effective engagement and communication with stakeholders is taking place.
• Ensuring the organisation is and is seen to be a responsible corporate citizen.
king III’s principles of integrated reporting and disclosure
King III identifies the following principles that should inform the process of integrated reporting:
E
• ffective communication with stakeholders is essential.
I
• ntegrated reporting should be focused on substance over form and should transparently
disclose information that is material, relevant, accessible, understandable and comparable with
past performance of the company.
I
• ntegrated reporting and disclosure should be formalised as part of the company’s reporting
processes.
E
• ffective reporting should take place at least once a year.
I
• ntegrated reporting and disclosure should have independent assurance.
.
7 King Code of Governance Principles for South Africa 2009 - Introduction and Background, paragraph 13
8. Ibid – Introduction and Background, paragraph 9
18
annex 2 – guIdance on the process For
developIng an Integrated report
This annex aims to provide practical guidance to organisations on the process to be followed and the
activities to be undertaken when developing an integrated report. While this guidance seeks to be useful
to all organisations, including those that have already produced combined financial and sustainability
reports, some elements will be of particular relevance to organisations that do not currently have the
experience or systems in place to produce sustainability or integrated reports.
While there may be a close connection between integrated reporting and the development of an
organisation’s strategy and risk management practices, this guidance focuses specifically on the process
associated with developing an integrated report and it does not address those elements relating primarily
to strategy development or risk management processes.
The following steps are suggested when developing an integrated report:
S E
• tep 1 – nsure organisational understanding of the implications of integrated reporting.
S
• tep 2 – Plan the reporting process and define the report scope and boundary.
S D
• tep 3 – etermine the material risks and opportunities that impact on the organisation’s ability to
create and sustain value.
S I
• tep 4 – mplement systems to ensure responsiveness to the organisation’s key stakeholders.
S E
• tep 5 – stablish internal systems to accurately obtain and monitor performance data.
S
• tep 6 – Develop and implement an appropriate assurance process.
S
• tep 7 – Compile and structure the integrated report.
S
• tep 8 – Ensure the organisation’s governing structure approves the report.
S
• tep 9 – Publicly release the integrated report.
step 1 – ensure organisational understanding of the implications of integrated
reporting
The first step in the process is to ensure there is clear understanding and agreement within the
organisation’s executive team and its governing structure on the principles and objectives of integrated
reporting and the implications of developing an integrated report. There should be clarity, in particular,
on the extent to which an integrated report differs from existing financial and sustainability reports, and
an understanding that it is not the same as a combined report. The organisation’s governing structure
should also appreciate the expectation that it has applied its collective mind in identifying the social,
environmental, economic and financial issues that affect the organisation’s ability to create and sustain
value.
step 2 – plan the reporting process and define the report scope and boundary
Another useful preliminary step is to agree on a project plan for the reporting process. Ideally, this should
be informed by the understanding within the organisation’s governing structure and executive team of
the implications of integrated reporting (Step 1). The plan should result in an appropriate governance
process being defined and implemented, with agreed deliverables, time frames and assigned roles and
responsibilities, including provision for final sign off by the governing structure. In developing the plan,
the organisation should seek to develop a process that will result in an integrated report that meets the
objectives and principles outlined in this Discussion Paper.
An important part of the planning process is to define the scope and boundary of the report. This will
involve determining which entities to represent in the report (e.g. subsidiaries, JVs, franchisees) as
well as agreeing the nature of the information to be reported for each entity (e.g. the full or pro rata
performance data, disclosure on the management approach applied to the specific entity, or general
narrative reporting on the relevant risks and opportunities associated with that entity).
19
annex 2 – guIdance on the process For developIng
an Integrated report contInued
additional guidance on boundary setting
Useful additional guidance on boundary setting is available:
I
• nternational Financial Reporting Standards (IFRS) on aspects of financial reporting
T
• he Boundary Protocol of the GRI on setting boundaries for sustainability reports
http://www.globalreporting.org/ReportingFramework/ReportingFrameworkDownloads/
T
• he World Business Council for Sustainable Development’s Greenhouse Gas Protocol relating
to greenhouse gas reporting
http://www.ghgprotocol.org/
step 3 – determine the material risks and opportunities that impact on the
organisation’s ability to create and sustain value
The organisation’s executive team should determine the risks and opportunities that are material to the
organisation’s current and anticipated activities and relate to its ability to create and sustain value over the
short-, medium- and long-term. The risks and opportunities will differ for each organisation depending, for
example, on its location, industry and customer base. The process of identifying risks and opportunities
should include a review of financial, social, environmental and governance issues and trends, an
assessment of the organisation’s material impacts on financial, social, environmental and economic
systems, and a review of its relationships with key stakeholders.
Ideally, this process should happen as an integral part of the organisation’s normal strategy formulation
and risk management activities. In addition to being informed by these internal activities, the identification
of material risks and opportunities should also be informed by the views and interests of key stakeholders
and by a consideration of the expectations of society relating to responsible organisational conduct as
outlined, for example, in relevant codes of practice (see the additional guidance box below).
The integrated report should include a transparent account of the process that was followed for
determining the material risks and opportunities.
additional guidance on identifying material issues and trends
There are many guidance documents and codes of practice that can assist with the process of
identifying the organisation’s material issues and trends, including:
I
• nternational Organisation for Standardization (ISO) guidance on Social Responsibility
ISO 26000 (see also Annex 1 of ISO 26000, which provides numerous examples of
cross-sectoral and sector-specific codes of practice
http://www.iso.org/iso/catalogue_detail?csnumber=42546)
T
• he GRI’s G3 Sustainability Reporting Guidelines
http://www.globalreporting.org/ReportingFramework/ReportingFrameworkDownloads/
U
• nited Nations Global Compact’s Blueprint for Corporate Sustainability Leadership
http://www.unglobalcompact.org/docs/news_events/8.1/Blueprint.pdf
W
• orld Business Council for Sustainable Development’s guidance Translating Environmental,
Social and Governance Factors into Sustainable Business Value
http://www.wbcsd.org/Plugins/DocSearch/details.asp?DocTypeId=251&ObjectId=MzgzMDY
C
• eres (2010) The 21st Century Corporation: The Ceres Roadmap for Sustainability
www.ceres.org
I
• nternational Council on Mining and Metals (ICMM) Sustainable Development Framework
http://www.goodpracticemining.org/documents/jon/ICMM_SD_Principles.pdf
20
step 4 – Implement systems to ensure responsiveness to the organisation’s key
stakeholders
An effective reporting process should ideally include explicit provision for a process of dialogue between
the organisation and its key stakeholders. If undertaken effectively, this dialogue process should enhance
the organisation’s ability to create and sustain value by building trust between the parties and by providing
a valuable input into the organisation’s strategy development process. It is recommended that systems
are put in place to facilitate this dialogue and ensure that the organisation is responsive to the views and
interests of its stakeholders.
As noted in Step 3, the views and interests of the organisation’s key stakeholders should be considered
as part of the process of identifying the material risks and opportunities. This could be undertaken by
assessing the views expressed as part of existing processes of engagement with investors, employees
and other stakeholders, and/or it could be an engagement process undertaken specifically as part of the
organisation’s integrated reporting process.
During the stakeholder engagement process it may become apparent that there are differences between
what a particular stakeholder group considers material and the view of the organisation. These variances
need to be captured by the organisation and evaluated. This may or may not lead to the organisation re-
evaluating its own view of material financial, environmental, social, economic and governance issues.9
additional guidance on stakeholder engagement
There are various guidance documents available that can assist the organisation in planning and
undertaking stakeholder engagement, including:
A
• ccountAbility AA1000 Stakeholder Engagement Standard
http://www.accountability21.net/uploadedFiles/publications/SES%20Exposure%20Draft%20
-%20FullPDF .pdf
T
• he International Finance Corporation’s Stakeholder Engagement and the Board
http://www.ifc.org/ifcext/cgf.nsf/AttachmentsByTitle/FOCUS8/$FILE/FINAL+Focus8_5.pdf
T
• he European Alliance for Corporate Social Responsibility’s Proactive Stakeholder
Engagement
http://www.csreurope.org/data/files/toolbox/Stakeholder_engagement.pdf
I
• nternational Federation of Accountants (IFAC) Sustainability Framework
http://web.ifac.org/sustainability-framework/ohp-determining-materiality
step 5 – establish internal systems to accurately obtain and monitor performance data
In addition to ensuring that systems are in place to obtain stakeholder input and feedback, the
organisation should ensure it has appropriate internal management systems for accurately obtaining and
monitoring relevant financial, environmental, social, economic and governance information. This should
include information relating specifically to the material risks and opportunities identified for inclusion
in the integrated report (Step 3), as well as information for the purpose of the reports that form part of
the broader integrated reporting process, including, for example, a separate (e.g. online) sustainability
report. When identifying these information needs, the organisation may wish to consider in particular
the recommendations provided in the GRI’s G3 Guidelines (also see the other initiatives listed in the box
under Step 3).
Management systems involve defining principles, policies, structures and procedures. Organisations are
encouraged to benchmark their KPIs against those of their peers. Trend analysis should be done where
historical data is available, and performance against targets should be reported.
9. An example of a global company that has done this effectively and has openly reported on these variances is Holcim (see page 8
of Holcim’s 2009 Sustainable Development Report).
21
annex 2 – guIdance on the process For developIng
an Integrated report contInued
step 6 – develop and implement an appropriate assurance process
Assurance processes over financial information are well established and the requirements for assurance
over a company’s financial reporting have not changed. Assurance processes over the environmental,
social and governance issues are less developed and organisations should engage at an early stage
with their auditors and other external and internal assurance providers to determine the aspects of the
integrated report that are to be subject to audit or assurance.
When determining the integrated reporting assurance strategy, it is recommended that a combined
assurance model should be followed taking into account assurance provided by management, internal
audit, external audit and other external assurance providers, such as ISO certification and BEE verification.
For the purposes of listed companies, King III requires that the company’s audit committee makes a
recommendation to the board on the need to engage an external assurance provider to assure the
material sustainability elements of the report.
step 7 – compile and structure the integrated report
Once the steps listed above have been followed an organisation should be in a good position to draft the
text and finalise the design and publication of its integrated report. In deciding on the structure of the
report the organisation should consider the guidance provided in this Discussion Paper (Section 3) as well
as examples of leading reporting practice locally and internationally.10
In terms of the writing style, content and design, the organisation should seek to produce a frank report that
is engaging and easy to read, that focuses on the organisation’s material issues, facilitates comparison
with peers and with its own performance year on year, and meets the objectives and principles outlined
in this Discussion Paper. Adopting an innovative approach that delivers on these aspects is typically far
more effective than adopting a checkbox approach to reporting.
step 8 - ensure the organisation’s governing structure approves the report
It is important for the relevant governing structure to approve the report. For listed companies, King III
specifically tasks the audit committee with responsibility for oversight of the integrated report. Among
other things, the audit committee’s role is to approve the identified material issues and to ensure the
information is reliable and that no conflicts arise when compared to the financial results. (Refer to
Annex 3.)
step 9 – publicly issue the integrated report
Each organisation should identify the appropriate way to release its integrated report. This could be in
the form, for example, of a media announcement (including the results announcements in newspapers),
SENS announcement, formal launch, or the use of an interactive website.
general
While the process above is explained in nine steps, it should be appreciated that there needs to be a
review process at least at the end, but possibly with each step, providing feedback loops to earlier steps
as part of a continuous improvement process.
There are a number of good reference documents on integrated reporting, including:
T
• he Prince’s Accounting for Sustainability Project Connected Reporting: A practical guide with worked
examples http://www.accountingforsustainability.org/output/page186.asp
R
• obert G. Eccles and Michael P. Krzuz One Report: Integrated Reporting for a Sustainable Strategy
http://www.amazon.com/One-Report-Integrated-Reporting-Sustainable/dp/0470587512
R
• obert G. Eccles, Beiting Cheng and Daniela Saltzman (edited by) Landscape of Integrated Reporting
Reflections and Next Steps
G
• uidance documents from accounting firms
w
• ww.sustainabilitysa.org
10. Some well-known examples of reports from global companies (available online) include: Novo Nordisk, Philips and BASF For .
other examples (in South Africa and internationally) it is useful to consider the findings of recent reporting awards, which are
increasingly recognising credible integrated reports. www.CorporateRegister.com is also a good source of internationally
recognised reports.
22
annex 3 - statement By the governIng
structure oF an organIsatIon to
accompany the Integrated report
The board of directors (Board) acknowledges its responsibility to ensure the integrity of the integrated
report. The Board has accordingly applied its mind to the integrated report and in the opinion of the Board
the integrated report addresses all material issues, and presents fairly the integrated performance of the
organisation and its impacts. The integrated report has been prepared in line with best practice pursuant
to the recommendations of the King III Code (principle 9.1). The Board authorised the integrated report
for release on …………
SIGNED BY DIRECTOR A, OR A AND B, WHO HAVE BEEN DULY AUTHORISED THERETO BY THE
BOARD
23
research reFerences
Draft Code for Responsible Investing by Institutional Investors in South Africa
Ernst & Young Integrated report – Content outline
Global Reporting Initiative (GRI) G3 Sustainability Reporting Guidelines
Institute of Directors in Southern Africa Sustainability Development Forum Integrated Reporting
KPMG Integrated Reporting: Closing the loop of strategy
King Code of Governance Principles for South Africa 2009
King Report on Governance for South Africa 2009
PricewaterhouseCoopers Steering Point Integrated Reporting; Integrated Reporting –
What does your reporting say about you?
OECD Guidelines for Multinational Enterprises
.
Robert G. Eccles and Michael P Krzus One Report: Integrated Reporting for a Sustainable Strategy
The Prince’s Accounting for Sustainability Project Connected Reporting: A practical guide with worked
examples
The International Accounting Standards Board Conceptual Framework for Financial Reporting 2010;
Management Commentary (exposure draft)
www.sustainabilitysa.org
24
acknowledgements
members of the Integrated reporting committee
Leon Campher/Peter Blohm* – Association for Savings & Investment South Africa
Cas Coovadia/Karin Ireton* - Banking Association South Africa
Garth Coppin – Ernst & Young
Freda Evans – JSE Ltd
Hester Hickey – Independent consultant
Suresh Kana – PricewaterhouseCoopers
Professor Mervyn King (chairman) – King Committee, Global Reporting Initiative,
International Integrated Reporting Committee
Corli le Roux – JSE Ltd
Ansie Ramalho – Institute of Directors in Southern Africa
Graham Terry – The South African Institute of Chartered Accountants
Jerry Vilakazi – Business Unity South Africa
Joel Wolpert – Chartered Secretaries Southern Africa
*alternate member
members of the Integrated reporting committee working group
Mohamed Adam – Eskom
Stephen Bullock – Anglo Platinum Ltd
Trevor Chandler – Association for Savings & Investment South Africa
Professor Derick de Jongh/Marius Schoeman* – University of Pretoria
Trevor Derwin – Deloitte
Lindie Engelbrecht – Ernst & Young
Malcolm Gray – Investec Asset Management
Jonathon Hanks – Incite Sustainability
Corli le Roux – JSE Ltd
Karin Ireton – Standard Bank Ltd
Shireen Naidoo/Neil Morris* – KPMG
Alison Ramsden – PricewaterhouseCoopers
Leigh Roberts – The South African Institute of Chartered Accountants
Graham Terry (chairman) – The South African Institute of Chartered Accountants
Sandy van Esch – Independent Regulatory Board for Auditors
Stiaan Wandrag – Sasol Ltd
Professor Alexandra Watson – University of Cape Town
*alternate member
25
The Discussion Paper has been released by the Integrated Reporting
Committee (IRC) of South Africa. The IRC invites public comment on the
Discussion Paper. Please email your comments to ircomments@saica.co.za
The last day for comment is 25 April 2011.
The Discussion Paper can be downloaded from www.sustainabilitysa.org
The Integrated Reporting Committee (IRC) of South Africa
comprises the following organisations
